RI 'still attractive' for oil and gas investment

RI 'still attractive' for oil and gas investment

JAKARTA (JP): An official at state oil and gas company
Pertamina said on Wednesday that the country's oil and gas
potential and the incentives offered by the government for their
development meant Indonesia was still attractive for investors.

"I believe the current oil and gas contractual terms and the
incentives are still applicable and the government does not need
to introduce new incentives for the development of the country's
oil and gas resources," Zuhdi Pane, an expert on the staff of the
Pertamina president, told The Jakarta Post in his personal
capacity.

Zuhdi is also Pertamina's chief negotiator in discussions with
oil and gas contractors applying for production-sharing contracts
(PSCs).

The country's oil and gas contractors, realizing that
Indonesia desperately needs earnings from the oil and gas sector
to cope with the monetary crisis, have recently raised their
longstanding calls for greater incentives in order to boost oil
and gas exploration in the country.

One of the demands is that they be allowed to consolidate
taxes from several oil and gas blocks in order to minimize
exploration risks.

Under the current contracts, each block is treated by the
government as a separate entity. As such, contractors are not
allowed to set expenditure in unproductive blocks against revenue
from productive areas.

Contractors are also calling for incentives to encourage the
exploitation of fields with small oil and gas reserves, known as
marginal fields.

In general, a field with oil reserves of less than 10 million
barrels is considered marginal but fields with reserves of up to
20 million barrels can also be considered marginal if they lies
in deepwater basins because contractors can only expect a small
profit for their labors.

Minister of Mines and Energy Kuntoro Mangkusubroto has
rejected the tax consolidation proposal out of fear of losing too
much government revenue from productive blocks, but he is
considering giving incentives for the exploitation of marginal
fields.

Kuntoro has said the government will hold a seminar in
February to get feedback from the industry on possible incentives
as it expected to formulate an incentive package by mid-1999.

Leon Codron, president and resident manager of Atlantic
Richfield Indonesia Inc., a subsidiary of Atlantic Richfield Co.
(ARCO), has said some half a billion barrels of Indonesia's known
oil reserves were sitting in fields currently too small for
viable development.

The government and Pertamina have launched several incentive
packages to encourage oil and gas exploration in deepwater and
frontier areas.

The government cut its oil split to 65 percent for deepwater
and frontier areas from 85 percent in conventional areas and its
gas split to 60 percent for deepwater and frontier areas from 70
percent in conventional areas.

Schemes

Zuhdi said Pertamina, in response to the contractors' call for
incentives for the exploitation of marginal fields, had long
offered several schemes, including interest recovery and
investment credit to make marginal field exploration profitable
for contractors.

Under the interest recovery scheme, which is offered to
contractors in case they experience cash flow problems, Pertamina
allows contractors to borrow money from banks for the
exploitation of the marginal fields and then the government
reimburses part of the loan's interest.

In comparison, under normal contracts, the government does not
reimburse the interest on contractors' loans.

Under the investment credit scheme, Pertamina will give
greater reimbursement to contractors for their capital spending
in marginal fields than in fields with large reserves.

But, Zuhdi said, contractors had thus far rejected the offer,
demanding instead that incentives for deepwater and frontier
areas be also be applied in marginal fields.

"Pertamina has rejected the demand because such a demand, if
fulfilled, will greatly reduce the government's earnings from the
fields," Zuhdi said.

"We are seeking to comply with the Constitution which says
that the country's natural resources should give maximum benefit
to the people. Moreover, in this time of crisis, we are seeking
to maintain high earnings from the oil and gas sector."

Zuhdi brushed aside fears that oil and gas contractors would
leave the country if their demands were not met, pointing to the
fact that Indonesia had awarded about 92 contracts over the past
five years, including 56 PSCs. The 56 PSCs are mostly for the
exploration and exploitation of frontier and deepwater areas.

"Thank God for giving our country a wonderful structure for
oil and gas exploration, compared to other countries. That is
why, although other countries give greater incentives than us,
contractors keep coming to our country," Zuhdi said, adding that
contractors get a 50 percent gross return on their gross
investment in the country.

The fact that the country has wonderful geological structures
for oil and gas is proved by the high success ratio of
explorations, he said.

Of the US$92.98 billion spent by contractors on exploration
in the country from 1966 to 1997, only 3 percent or $3.18 billion
pertained to contractors who failed to find oil and gas and
relinquished their contract areas to Pertamina, Zuhdi said. (jsk)